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Draw an AD-AS graph plus the bond and forex markets. (You do not need the money market for this question.) Suppose that the government increases spending and finances that new spending by selling more Treasury bonds. a. Use your graphs to show and EXPLAIN how the increase in government spending would crowd out investment and probably worsen the trade balance (X-M). b. Why might crowding out be even more of an an issue in the long run? c. Why is crowding out less of an issue for the US than it might be for a developing country (like Venezuela, for example)?

Draw an AD-AS graph plus the bond and forex markets. (You do not need the money market for this question.) Suppose that the government increases spending and finances that new spending by selling more Treasury bonds. a. Use your graphs to show and EXPLAIN how the increase in government spending would crowd out investment and probably worsen the trade balance (X-M). b. Why might crowding out be even more of an an issue in the long run? c. Why is crowding out less of an issue for the US than it might be for a developing country (like Venezuela, for example)?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Draw an AD-AS graph plus the bond and forex markets. (You do not need the money market for this question.) Suppose that the government increases spending and finances that new spending by selling more Treasury bonds. a. Use your graphs to show and EXPLAIN how the increase in government spending would crowd out investment and probably worsen the trade balance (X-M). b. Why might crowding out be even more of an an issue in the long run? c. Why is crowding out less of an issue for the US than it might be for a developing country (like Venezuela, for example)?
Transcribed Image Text:Draw an AD-AS graph plus the bond and forex markets. (You do not need the money market for this question.) Suppose that the government increases spending and finances that new spending by selling more Treasury bonds. a. Use your graphs to show and EXPLAIN how the increase in government spending would crowd out investment and probably worsen the trade balance (X-M). b. Why might crowding out be even more of an an issue in the long run? c. Why is crowding out less of an issue for the US than it might be for a developing country (like Venezuela, for example)?
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